26/11/2017 Everything you need to know about blockchains - Business Insider

Here's everything you need to know about

blockchains, the ground-breaking tech that
could be as disruptive as the internet
BECKY PETERSON
NOV. 26, 2017, 9:00 AM

Samantha Lee/Business Insider

From a 'castle' full of bitcoin millionaires to the initial coin offering (ICO) craze, it's hard to escape the chatter
about how some people are building their fortunes off the new world of cryptocurrencies. But behind those
cryptocurrencies sits a technology called blockchains, which some people believe could fundamentally rewrite
how transactions are handled online.

With analysts at UBS estimating that blockchains could be a $300 billion to $400 billion global industry by 2027,
it's clear that regardless of what happens in the bitcoin bubble, blockchain technology is here to stay.

Here's what you need to know about blockchains, the technology that's set to disrupt the world of contracts,
finance, shipping and countless other industries.

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Blockchains are digital ledgers

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Simply put, a blockchain is a digital ledger. Each unit of the ledger is a "block," and these blocks are linked in order of when
they are created. The blocks are linked together using cryptography, which binds them together in a way that is virtually un-
editable.

Inside every block is a complete history of everything that has ever happened on that chain, as well as the rules that all of the
blocks follow.

Think of a blockchain as an ever evolving music playlist

Imagine that you start a new playlist on Spotify. Every time you add a song, you create a
new version of the playlist, or a new "block" in the chain. The new block contains your
newly added songs and the previous songs.

If your cousin decides to add some country music songs onto the playlist, she creates the
next block in the chain. If that block is approved by all participants, a new block gets
added to the chain and becomes the new version of your playlist. If your cousin also
decides to delete one of your songs from the playlist, the next version of the playlist
would contain a note that the song was previously on the list, but has been deleted. Darren Hauck / Stringer

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They are most useful in situations where you need a trustworthy system
of record
Blockchains are good for two things: recording events, and
making sure that record is never erased.

This makes them particularly useful in situations where

two people want to make a deal but don't trust one another.

Some think blockchains could put an end to fraudulent

deals, such as the Ponzi scheme that led to famed investor
Bernie Madoff's demise around 2009.

Bernie Madoff was sentenced to 150 years in prison

in 2009 for running the biggest fraudulent scheme in
U.S. history

Mario Tama/Getty Images

Blockchains could eventually replace institutions like banks and law

firms
As a society, we've developed institutions, like law firms and banks, to handle the
exchange of property and money.

But many of these exchanges can also be achieved using blockchain technology as a smart
contract or a self-executing contract. Smart contracts use rules to require that one thing
happens in order to get a desired outcome.

If Person A is leasing an apartment, for example, the smart contract could require that
Person B transfer $1,000 to Person A in exchange for the apartment door code.
Spencer Platt/Getty Images

Blockchains eliminate the risk of having a middleman who defrauds someone on either
side of the transaction or who takes the money and runs.

Bitcoin, the first blockchain ever, was created in 2009 to do just that
Bitcoin the uber popular cryptocurrency whose price
soared above $8,000 a pop this month was the first
blockchain ever created.

Bitcoin was created in 2009, following the instructions set

out in a white paper written by a mysterious figure known
as Satoshi Nakamoto, whose true identity is still unknown.

The original idea was to create an electronic form of cash

that could be sent "peer-to-peer" without going through a
bank an objective which was inspired by the banking
crisis during the 2007-2008 recession.

A Japanese American man named Dorian Prentice

Satoshi Nakamoto was misidentified as the creator
of bitcoin in 2014. The true identity of bitcoin's
creator or creators remains unknown.

REUTERS/David McNew

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The whole system is "distributed," which means no single institution has

control

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Because there is no central server to hack or attack, hackers cannot just take over a single computer and make a change. This
is compared to a bank, for example, which may have a central database of information, or a central vault in which all of the
money is stored.

It also protects users from relying on institutions, such banks, which often make decisions in their own self-interests, and
which can be volatile and susceptible to collapse in some regions.

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Every change on the blockchain has to be approved of by the network

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One of the reasons that it's so hard to edit blocks is that a blockchain lives across a distributed network of computers that all
have to approve of any change that happens on the network.

This process is called consensus, and it's considered to be one of the major security benefits of working on a blockchain.

One major drawback of blockchains is that they are still pretty slow
Every application that is built on top of a blockchain processes the entire history of that
blockchain every time a change is made. This means that transactions on blockchains are
extremely slow when compared to normal computer speeds.

Bitcoin, for example, can only handle seven transactions for second, while Ethereum can
handle around 13. This is compared to Visa, which as of 2014 could handle 56,000
transactions per second.

As blockchains like Bitcoin and Ethereum gain momentum, engineers will have to adapt
Flickr / Nick
the technology so that it is able to scale to its full potential.

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When something does need to be edited, that requires a "fork"

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Like a fork in the road, blockchain forks are when one chain diverges to become two. Forks are used in blockchains when
there is a rule change or a block that needs to be removed.

However, because of the distributed network which requires every computer to consent to any change forks are not
easy to achieve. Forks often become political issues in the communities that make such decisions.

Forks can get pretty political, especially when it comes to

cryptocurrencies
The Bitcoin blockchain, for example, has seen several forks as the larger community
works to create a blockchain that can handle more transactions-per-second than is possible
on the original blockchain.

One of those forks took place in August with the creation of "bitcoin cash." The new
blockchain has all the same history as the original bitcoin blockchain up until the moment
that it forked.

To take just one example of how political things got: the highly-valued cryptocurrency
REUTERS/Bobby Yip
exchange Coinbase saw users flee in response to the company's decision not to host the
new currency, bitcoin cash. The company quickly reversed its decision and decided to
support the newly created currency.

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Ultimately though, most consumers will never notice a difference

Despite the hype, blockchains are designed to be a
backbone for the transaction layer of the internet. While
you may notice better tracking on items you buy online, or
lower international transfer fees, most consumers won't
ever interact with blockchains directly.

Consumer-facing applications will look exactly the

same.

Matt Cardy / Stringer / Getty Images

Two of the most popular blockchains are Ethereum and Hyperledger

Fabric
Anyone with the technical know-how can create their own blockchain, but many
companies choose to build on top of existing blockchains with larger networks because
the technology has been tested and improved upon with time.

Two of them most popular blockchains are Ethereum and Hyperledger Fabric, which both
make it easy for startups and large enterprise companies alike to build blockchain tools.

Ethereum

Ethereum is more popular with startups

Ethereum is a public blockchain, which means anything
that happens on it is publicly visible. It was created in
2013 by a 19-year-old named Vitalik Buterin, who has
since become the face of the technology.

Ethereum blockchain has its own cryptocurrency called

ether which costs around $400 a coin. But the
blockchain has also become host to an array of startups
who are building a range of products from apps
like uPort which aims to replaced state-issued IDs with an
authenticated digital identity, to GridPlus, which uses the
Ethereum blockchain to track energy consumption with the
goal of lowering utility bills.

Vitalik Buterin is the Russian-Canadian programmer

who created the Ethereum protocol in 2013.

Vitalik Buterin/Twitter

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Hyperledger Fabric lets corporations build private blockchain projects

Hypderledger Fabric is a hybrid private/public blockchain
created by the Linux Foundation, which makes it easy for
large corporations to create blockchain products with more
privacy than other public blockchains allow.

It's been embraced by a host of large corporations like

IBM, Cisco, and Oracle, which use the technology in their
own blockchain products.

Ginni Rometty, CEO of IBM, has positioned the

company as a leader in blockchain.

IBM

IBM is using it to track food around the world to improve food safety.
IBM has a few different blockchain projects, including a product that aims to prevent
food-borne illnesses by improving the system that tracks produce from farm to grocery
store.

The company is also teaming up with the fintech startups Stellar.org and KlickEx
Group to use blockchain technology to process financial transactions across borders and
currencies a process which is often prohibitively slow and costly for small business
owners, especially when they are in developing regions with smaller banking
infrastructures. Tim Boyle / Staff / Getty Images

Oracle is releasing a platform to let its customers build their own smart
contracts
Oracle plans to release a product in 2018 that has "pre-assembled" tools for enterprises to
use for anything that requires contracts, transactions, or tracking.

It's one of the biggest projects to date which will let companies benefit from blockchains
without having to interact directly with the complicated and hard-to-use technical
infrastructure behind the technology.

Oracle

Analysts predict that blockchain could be a $400 billion market by 2027

In October, the UBS Chief Investment Office published a
report called "Cryptocurrencies: Beneath the bubble,"
which estimated that blockchain technology could about
add $300 billion to $400 billion to the global economy by
2027.

"Investing in the blockchain wave is akin to investing in

the internet in the mid-nineties," the note reads.

But the analysts at UBS are not without their reservations.

The note said that while it could lead to "significant
disruptive technologies" in the next 10 years, that there are
still "technological shortcomings" which need to be
resolved before it will be clear which applications will be
the most profitable to invest in.

Blockchain tech could have a significant impact on

industries in the next 10 years.

iStockPhoto

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